- The number of properties available
to rent in Neath has dropped from 111 to 44 since February 2020.
- The average rent a tenant has had
to pay in Neath has risen from £516
to £728 since February 2020.
- Many Neath landlords have cashed in on the
post-lockdown property boom of the last two years and sold their properties to
owner-occupiers – not fellow landlords.
- The supply of Neath rental
property isn’t near what is needed, which is of benefit to Neath landlords
rather than Neath renters.
The Neath
rental property shortage is currently very evident. In this article, I
will investigate why there is such a significant lack of homes available for
rent across Neath and what it means for buy-to-let investors.
Anybody
who enjoys surfing the property portals (Rightmove, Zoopla and On the Market)
will have observed an emerging trend that the number of properties available to
rent in Neath has dropped considerably in the last couple of years.
This
reduction has been seen all around the UK as well. For example, on 1st
November 2020, there were 372,931 properties to rent on portals. By the 1st
November 2021, that had dropped to 275,650; by the 1st November
2022, that had fallen to 171,224.
That doesn’t mean the number of privately rented homes in the country has dropped by over half. Fewer properties are coming onto the market to rent. I will explain why in this article.
For
tenants, especially over the last 12 months, it has become progressively more challenging
to find a Neath rental home, thus making the rent they must pay go up. This
state of affairs in the property market isn’t showing an indication of getting any
easier either, making for a hard time for Neath renters.
So,
what is the reason behind the Neath rental property shortage, and what does this
mean for existing Neath landlords or those potential investors considering buying
a Neath buy-to-let property soon?
Several
different components are making the perfect storm in the UK property market.
Firstly, the number of households in the UK.
The
UK has not been building enough homes for the last 20 years. I appreciate that
parts of Neath seem like one huge building site, yet as a country, we are woefully
undersupplied with property to live in. This has meant house prices continue to
rise due to demand.
The
government have known about this issue for decades. The Barker Review of
Housing Supply published in 2004 stated that the UK had experienced a long-term
upward trend of 2.4% in real house prices since the mid-1970s because
of a lack of house building. The report stated that 240,000 houses needed to be
built each year to keep up with demand.
The
average number of houses built since the mid-1970s has been around 165,000 per
year, meaning the UK is short of 3,375,000 houses
(i.e., 45
years multiplied by 75,000 missing homes per year).
Several
years ago, the government set a target to build 300,000 new homes each year to
address this issue.
However,
in 2019/20, the actual number of homes delivered stood at just 243,770. In
2020/21, the number of properties built dropped to only 216,000 new homes. In a
nutshell, there are fewer available homes to buy, meaning fewer available homes
to rent.
Secondly, Neath tenants are staying in their rental homes longer.
A
Neath first-time buyer’s average house deposit is £33,622
(the UK average deposit is £53,935).
The
average rent of a Neath property in November 2022 is £728 per calendar month
(up from £516 per calendar month in February 2020) – quite a rise!
These
numbers translate into Neath renters not being able to pay the rent and be able
to save for a deposit, or if they are saving, it is taking a lot longer to save
for a deposit due to the cost-of-living crisis and higher rent costs.
Also,
many Neath tenants have decided to stay in their existing rental homes because
of the rent rises. Many landlords are less inclined to raise the rent on an
existing property when they have a decent tenant who keeps the property in good
condition and pays rent on time. Anecdotal evidence also suggests that rent
arrears in those properties are dropping as tenants know if they don’t pay the
rent, the chances are they will have trouble finding another property, and if
they do, they will have to pay a lot for their next rental home.
For
Neath landlords, this is all positive news – tenants are staying for longer in
their Neath rental properties, arrears are lower, and void periods are less
likely. When it comes to the market, there is less competition (because of the decrease
in the availability of Neath rental properties) so this makes the investment an
even better bet.
Thirdly, landlords are selling up on the back of recently increased house
prices.
It
would be difficult for Neath buy-to-let landlords to ignore the rising property
prices in recent years.
The
average property value in Neath in the summer of 2022 was 17.1% higher than in the
summer of 2021.
For
some Neath buy-to-let landlords, especially those who were classified as ‘accidental
landlords’ (an accidental landlord is a landlord who never chose to become a
landlord, it was just after the Credit Crunch of 2008/9, they found themselves
unable to sell their property, so they temporarily let their own property out),
they chose to ‘cash in’ on the higher house prices. This would have also contributed
to the lack of available Neath homes for rent.
Yet
everything isn’t all sweetness and light for Neath landlords.
Landlords
have a few costs to consider before investing in buy-to-let, including
everything from regular refurbishment costs, buildings insurance, letting
agents’ fees, income tax, and, not forgetting, Land Transaction Tax.
Talking
of costs, one issue some Neath landlords are facing is their failure to plan
financially for the recent mortgage interest rate rises. Some Neath landlords
may have become complacent to the ultra-low Bank of England base rates we have
had since 2008 and, therefore, may need to sell their rental property, which, if
bought by a first-time buyer, will remove another property from the Private
Rented Sector.
Another
hurdle to jump is the proposed new regulations requiring better energy
efficiency for rental properties. It is proposed all new tenancies must have at
least a minimum of a ‘C’ rating for their EPC (Energy Performance Certificate)
from 2025 (and 2028 for all existing tenancies).
Therefore,
as a buy-to-let Neath landlord, it is wise to do your research to make sure the
buy-to-let opportunity is correct for your rental portfolio, particularly when
it comes to weathering any impending financial storms.
Landlords need to consider the returns from their Neath buy-to-let investments.
Landlords
can earn money from their buy-to-let investments in two ways. One is the
property’s capital growth, and the other is the rental return (often expressed
as a yield). In 96% of buy-to-let investments, there is an inverse relationship
between capital growth and yield (i.e., properties that tend to go up in value quicker
will have lower yields 96% of the time – and vice versa).
Getting
the best balance of yield and capital growth depends on your current and future
needs from your Neath buy-to-let investment.
If
you would like me to review your portfolio and ascertain if your existing
portfolio will match your current and future needs for the investment – whether
you are a client or not, feel free to drop me a line, and we can have a
no-obligation chat and possibly organise a review.
What
does all this mean for the Neath rental market?
The
continued shortage of Neath rental properties means it will be more difficult
than ever to find a Neath property to rent, and so rents will continue to grow.
Unlike
in Scotland, England and Wales do not have rent controls, with Westminster
ruling out the possibility of introducing rent control here to deal with the
cost-of-living crisis.
You
would think rent controls would be a no-brainer, yet economists from around the
world have proved for the last 75 years that rent controls might help tenants
in the short term, yet ultimately it drives landlords to sell their investments
in the long term, thus reducing the stock of available properties to rent out
(not great for future tenants).
Therefore, it is highly likely that Neath rents will continue to rise for tenants.
Landlords
who persevere with their Neath buy-to-let properties or become a Neath
buy-to-let landlord are set to benefit because they have an asset in very high
demand.
The
housing shortage, not to mention the other issues discussed above that are
affecting the supply of rental properties, is unlikely to be fixed anytime soon!
In
conclusion, the Neath rental market is a constantly changing picture. What is known
is that the supply of rental properties is far from what is needed, which can
only be to the benefit of buy-to-let investors rather than of tenants renting.
I
see buy-to-let as a long-term investment. Everyone reading this knows that the
real value in your buy-to-let investment is playing the long game, allowing
your Neath buy-to-let investment to grow over time. Like the crypto or stock
market, getting sucked in by get-rich-quick schemes that are selling ‘apparent
quick wins’ in property investment is very easy.
I
regularly highlight the best buy-to-let deals for Neath landlords with all the
estate agents (not just my own). You don’t need to be a client of mine either
to receive that information. Drop me a line or call (without any cost or
obligation) if you are interested in making your first Neath buy-to-let
investment or considering adding to your existing Neath portfolio.
